Monthly Archives: May 2015

Smart homes, still in its infancy in the country are the result of the demand of home buyers’ exposure to cultures. Industry insiders point at the pool of IT/ITes employed sections and especially those in the senior rung form the target audience for such mechanized homes. These are a means for those whose professions involve high levels of stress. The comforts, enablement and security that smart homes offer are a means to relax and generate more time to spend with their families.

However, the buying pool is not restricted to the software crowd. The target audience has expanded a lot and includes a larger section of gadget-conscious younger generation of home buyers with a well-defined yen for automated homes. These are generally those buyers who fall in the age group of 29-40 and regardless of career orientation; they are upwardly mobile, highly aspirational and eminently qualified for home loans and the real estate industry never fails to charm these home buyers.

In Bengaluru, the hub of technology, customised homes are also increasingly trending. Buyers have the liberty to choose their interiors, layouts, fittings and furnishings and even added amenities although at a premium

Smart homes offer technological features wherein home owners can operate almost anything in their homes (including lights, air conditioners, security systems, curtains and blinds) with just a click! Many Indian cities have been migrating slowly from regular homes to designer spaces and as disposable incomes increase, ‘smart’ is the new way.

These homes are still within the luxury segment and confined to high-end localities where capital values are high. Even properties in the secondary market go in for a thorough renovation and improve the quality of housing by fitting in electronic functionalities so that before a hazard- fire or otherwise, you are aware of the disaster within seconds through Internet of things (IoT).

Areas such as Koregaon Park and its vicinity where there is influx of NRI crowd and expat population are the ones that boast a few smart homes with high-end amenities. As for the newer areas, demand is restricted to regular flats mostly. However, developers are not wary of venturing into giving an option of customized homes.

Madipakkam is now attracting buyers, due to its proximity to Velachery and Maduvinkarai and is now a preferred destination for home buyers. Property values in the locality vary within Rs 4,550-5,440 per sq ft. While Velachery has properties within the budget range of Rs 6,140-7,780 per sq ft, Maduvinkarai offers properties in the range of Rs 6,300-8,000 per sq ft.

Adyar is another premium area which is about 10 km away from Madipakkam. In Adyar, property values range between Rs 13,000-17,500 per sq ft. Madipakkam is an affordable option to those with a tight budget.

It is connected by suburban railway stations such as Velachery and St. Thomas Mount. Other modes of transport easily available are auto rickshaws and buses. Metro railway line is also proposed to come up in near future. Also, the area is situated along the 200 feet wide road. The locality is connected to Tiruchi-Chennai Highway on one side and Old Mahabalipuram Road (OMR) and Pallavaram on the other side.

Easy connectivity to the localities situated along the OMR, such as Sholinganallur, Karapakkam and Perungudi is another reason why people opt for this area.

In terms of social infrastructure, there are ample numbers of schools present, but some pockets of Madipakkam such as Ram Nagar South face water logging and drainage issues during rains. However, most parts of Madipakkam is well established and developed when we talk about civic issues. The area also offers regular water supply and no major power cut.

Madipakkam’s recent inclusion to the Chennai Municipal Corporation limits, the liveability aspect of the area has improved for the residents. This has also pushed buyers to look out for properties here.

Source – Times of India

Currently, Madipakkam sees demand from locals as well as from outstation people. Since the area is close IT hubs such as Velachery and OMR, buyers are families of those working in the IT companies.

The area currently is witnessing a maximum of 2BHK apartments, while few 1 and 3BHK units are also offered. The price of 1BHK unit sized 450-750 sq ft area ranges from Rs 18-29 lakh, while a 2BHK apartment sized 800-1200 sq ft, can be bought for Rs 35-65 lakh.

The notorious colonial era Land Acquisition Act of 1894 has been thoroughly misused by the states. Forcible acquisitions in excess of needs, just to ‘catch all’, terming it as for ‘public purpose’ led to capitalism in land deals. The SEZ acquisitions of recent times, similar lines, have sparked protests since the state was acquiring land at very low prices.

The recent amendments to the land Act, as promulgated in the ordinance, seek to broaden the ambit of “public purpose” vis-à-vis the United Progressive Alliance (UPA)’s Act . Public purpose is now tightly defined. A tighter definition, resulted inevitability in having to seek “consent” for projects of national importance. This is what the current government believes goes against its agenda of speedy economic development and job creation

Historically we are people not trusting the state in defining “public purpose”; and two, the lack of clarity on the processes by which such a decision is sought to be arrived at in the present. The UPA government tried to bridge this chasm by putting most acquisitions under the “consent” clause. The current government argues that it severely hurts speedy economic development.

It would be worthwhile considering setting up an independent and credible “public purpose validation commission” at the central and state levels as an acceptable via media between the contentious extremes of “80 per cent consent” and “forcible acquisition.” Such a commission could well be structured with eminent citizens across different walks of life who can be trusted by the public at large to validate or not validate the government’s claim for forcible acquisition for public good.

This could well forge an agreement between warring political parties as well as provide reassurance to the people of India at large. It would certainly be more impactful and relevant than the proposed quasi-judicial authority — the Land Acquisition Rehabilitation and Resettlement Authority, which is supposed to hold hearings in places where acquisition is taking place. The nation wants an ex-ante body for endorsing “public purpose.” Not an ex-post body for cleaning up the mess.

For decades, unscrupulous developers could get away with blue murder, thanks to an acute housing shortage, lack of organised resistance among buyers, avaricious political patronage and the absence of any governance frameworks and redressal mechanisms. In recent times, judicial oversight and some high-profile orders from the Competition Commission have gradually started sending strong signals about dealing with recalcitrant builder behaviour. Finally, comes the Real Estate (Regulation and Development) Bill, cleared by the Cabinet on April 7, 2015. It is worth noting that while land is a state subject, regulating contracts and transfer of property are on the concurrent list. The Bill puts in place a sector-governance framework across four broad areas:

(i) Creation of an independent regulatory authority: India finally seems to be getting its regulatory framework in place, albeit in fits and starts. Real estate regulatory authorities (RERAs) will be established in every state and be paired with real estate appellate tribunals (REATs) to consider appeals against orders of RERAs. All commercial and residential projects now need to be compulsorily registered with RERA.

(ii) Prevention of diversion of funds: This has been the bane of real estate development, where cash-strapped developers ran a chit fund like ponzi where advances from newly-announced projects were used to fund past projects. The Bill now provides for a compulsory deposit of 50 per cent of the total amount realised from buyers into a monitorable account in a scheduled bank – to be used only for the construction of the designated project. (Critics argue that the dilution from the earlier proposed 70 per cent down to 50 per cent still allows developers to divert substantial funds.)

(iii) Mandating consumer protection measures: These safeguards were long overdue and had seen high-decibel advocacy by real-estate gurus such as Deepak Parekh. They relate to:

Specifications in a project not being altered at the free will of the promoters unless the consent of at least two-thirds of the buyers of the project has been obtained;

Preventing the promoter from accepting advance payments or application fees of more than 10 per cent of the cost without entering into a written agreement with the buyer;

Prescribing stringent penal provisions for violations that could lead to the de-registration of the project and penalties that could range between 5-10 per cent of the project cost;

Introducing the right to claim refund, with interest and compensation, in case a promoter fails to deliver.

Prohibiting the sale on the basis of super-area, by making it compulsory for promoters to advertise carpet area when selling a project.

(iv) Stopping ‘flying below the radar’: Only projects registered with RERA can be bought or sold. Developers will have to mandatorily disclose all details on the regulator’s website, such as layout, design, approvals from various authorities, details about brokers and so on. A developer will not be able to market any project unless all approvals are in place. Property buyers will be able to check details about a project online. They can also monitor the progress of construction and lodge a complaint if it is not completed on schedule.

A bunch of current projects could get delayed as developers adjust in the short to medium term to the discipline of earmarking designated funds for specific projects. Also, waiting for all approvals to fall into place is likely to stretch the working-capital cycle. Prices may adjust upwards as carefully camouflaged ‘super-area’ quotes stand exposed against the harsh glare of ‘carpet-area’ pricing.

The ‘developer’ crowd does not sound overtly happy. They feel the new regulatory provisions obsessively target them only while other concerned authorities are not even addressed. Specifically, they would like states to set-up a single-window clearance system for some 50 project-related approvals. Authorities also need to commit that all infrastructural linkages will be provided, for which external development charges are paid to local authorities. The issuance of completion and occupation certificates from authorities should also be brought under regulatory supervision as these, along with other permissions, are areas well-known for rent-seeking behaviour.

Overall, the Bill does indeed create confidence in the market for real estate. It sets the stage for ushering in many more credible domestic corporates and also gives comfort to foreign investors. It may also result in better access to bank funding with enhanced overall credibility of the sector.

All this is expected to take around a year as this Bill awaits approval by Parliament after which the regulator comes into being and settles down to its task.

Apollo is setting up real estate private equity platforms in Asia with offices in Shanghai, Hong Kong and Delhi, among other cities. Nipun Sahni, former managing director and head, India, real estate investment group at Bank of America-Merrill Lynch and founder and chief executive officer at Rezone Investment Advisors, has joined US-based Apollo Global Management as partner and head of real estate, India.

Sahni has joined Apollo along with Philip Mintz, founder of Venator real estate private equity, and his China team. Mintz will be heading Apollo’s Asia real estate private equity platform.

Asia is a growing market for real estate capital. We would like to get our investors to participate in the right strategies in Asia. Besides real estate private equity, Apollo has three other platforms in India for private equity, special situation investing and credit with independent teams.

As of March 2015, NYSE-listed Apollo managed over $163 billion of investor commitments across its private equity, credit and real estate funds and other investment vehicles making it one of the largest alternative investment management firms globally.

Apollo’s focus on Asia real estate comes at a time when global real estate investors such as US-based Blackstone and Singapore’s GIC are aggressively buying commercial assets in countries such as India.

It is a great time to invest in India and own income yielding assets in office and retail space as valuations are attractive. In 12-18 months, markets will pick up due to government initiatives such as Make in India.

Benami Transactions (Prohibition) Amendment Bill in the Lok Sabha on May 13, may not have rung a bell in the ears of many an investor in real estate. However, avid followers of Union budgets from time to time would certainly notice the continuous efforts of Finance Ministers over the last three decades in unearthing black money and they would have flagged the possible repercussions of the Bill.

The present Finance Minister had also promised in his 2015 budget that such a legislation will be brought in early as part of the new Government’s plans on the black money issue.

If one goes through the property or other investment related sales promotion columns, the cash transaction route will have its prominence almost everywhere, instead of cheque. It is common knowledge that almost one-third of Indians have had no bank accounts till the recent ‘Jan Dhan’ thrust.

If we go through the sale deeds registered with the sub-Registrars through the length and breadth of the country, there may not be even a single sale without payment in ‘cash’.

It can also be observed that many agricultural land sales are effected in the names of the tillers of land, may be due to the prohibitory laws in many States against owning land by non-agriculturists. In many cases, the sales of land also are registered in the names of relatives and friends.

The term ‘benami’ is used to denote a behind-the-curtain ‘owner’ who lends his or her name as a purchaser. The money, source of which is not known, becomes ‘black’. Some of our laws do not completely ban such transactions, though there are legislations like Income Tax Act, Undervaluation Rules etc., which have provisions to pave the way for locating them.

The first specific legislation on the subject was the Benami Transactions (Prohibition) Act, 1988. Based on the experience in implementing its provisions, the Government, in 2011, introduced another Bill with fresh/additional provisions, which was referred to the Standing Committee on Finance, the report of which was submitted in June, 2012. The Bill, however, lapsed with the dissolution of the 15th Lok Sabha. The 2015 Bill has also been referred to the Standing Committee on Finance. The Bill is likely to come up in the monsoon session of Parliament.

Public spaces are the most important areas where universal design can be applied to make more convenient and comfortable for the user. There is awareness on the quality of life that such changes can bring but lack of experience. Education can bring about development of better designed facilities.

Footpaths are an important element on a road. There are several local bodies that are working towards developing footpaths and cycle tracks. While space availability is a constraint in the country, there are case studies, experts and data that can be tapped to find the right solution. The answer is to look closely and see what can be done with the space available. We need to re-organise the elements on a footpath, including the greenery and design.

Design should incorporate adequate space for commercial activities as well. When a property, such as an industrial or IT park is developed, open space reservation should be implemented in such a way that the space is put to use for the public and neighbourhoods in the vicinity. Universal design needs commitment to the process and public participation to sustain it. The key part of universal design is to bring people together and get their support to implement the proposed design.

This landmark investment announcement with Goldman Sachs, an experienced investor in Indian and global real estate, will accelerate our firm’s footprint across the country by providing capital where it is needed, as well as through acquisitions of existing projects.

The company believes that the recovery in India has begun, which will kickstart the investment and consumption cycles, which is in line with the company’s vision.
Goldman Sachs has been investing across sectors in the Indian economy. Since 2006, it has deployed a little more than $2 billion (Rs 12,750 crore) in India.

Chrompet and Tambaram are the two localities of South Chennai which are just 5 km apart, but the difference in their average capital values is noteworthy. While Chrompet’s average capital value is Rs 4,600 to Rs 5,720 sq ft, Tambaram’s average capital value is Rs 3,740 to Rs 4,400 sq ft. Both localities are situated along the Trichy-Chennai Highway and have high availability of residential properties. Buyers can save up to Rs 13 lakh on their property purchase if they are willing to travel a bit without compromising much on the social or physical infrastructure.

In Tambaram, home buyers have to spend out Rs 13 lakh to Rs 1 crore to own a property size between 600 and 2000 sq ft whereas its neighbor, Chromepet, offers apartments and houses in the price range of Rs 24 lakh to Rs 1.3 crore with covered area varying from 550 to 1800 sq ft. Clearly, both low and high ranges have a difference.

Tambaram comprises of various super markets, banks and schools along with IT companies. Various initiatives by Tambaram Municipal Corporation have already impacted the realty market and are already attracting buyers to the area. It is situated about 27 km from the centre of the city. It is home to one of the busiest railway terminals of the Chennai Suburban Railway Network. It is very popular among IT professionals, Non Residential Indians (NRI) and High Net worth Individu als (HNIs).

While some of them are buying properties as end users, others are buying as a potential investment. The commissioner of Tambaram municipality, N Ravichandran shares various plans they have commissioned or are underway. In order to make the locality clean, an Underground Sewage (UGS) programme is being implemented throughout. Wherever sewage construction is happening, concrete roads are being laid above it in an attempt to solve the water logging problems of the area.

Similarly, a solid waste management programme known as BINS has also been initiated in five places to solve garbage problem of the locality. Residents themselves have started segregating the waste and putting them in different bins making our work easier. ‘Namma’ toilets, bio-digesters and community kitchens solve the sanitation and power problem in slum areas. These initiatives have changed the face of the locality and contributed to its growing popularity.

One of the biggest dreams or goals of human beings is to own a house. Given the fact that the costs of property has risen at a healthy pace of about 15% per annum over the last couple of decades, investing in this asset has been on the rise and nobody seems to bother about such escalations.

The innumerable offerings by numerous builders and developers is a mirror for such push and pull attributes that is based on demand to own real estate.

One of the main reasons for such a phenomenal growth of this asset can be attributed to the fact that people want to own more than one property, either by way of empty plots/sites or built houses/apartments.

The need to own multiple real estate assets has almost become an insatiable thirst coupled with, perhaps, greed which probably is to ensure that they would feel more financially secure with multiple properties across locations.

Real estate is not a liquid asset and also is not tax-friendly. Moreover, the annual rise or returns on investment will not be consistent and in many circumstances it could not even beat inflation. Even the rentals, if the investment is done to achieve monthly income, may not be enough to meet the EMI outflow. For an EMI of Rs.21,492, the rental income should match with this outflow which is very rare and may not compensate the loan repayment requirement. Such commitments could lead to financial stress which should be avoided. One has to grow organically by way of a good asset allocation of investment portfolio instead of having concentrated exposure to single asset.

An asset bubble of the size of U.S. subprime in India could erase all the notional gains. Prudence is important before investing in a second property.